Sasfin Bank says the civil summons for R4.87 billion, plus interest and costs, served on it by the South African Revenue Service (SARS) is without merit and will not result in the recognition of any liability.
In a SENS announcement on Tuesday, Sasfin Holdings said it intends to defend the claim. But it expects the matter will only go to court in several years’ time because it involves a defended trial action.
The summons, which Sasfin received on 9 January, arises from SARS’s purported inability to collect income tax, value-added tax (VAT), and penalties allegedly owed by the bank’s former foreign exchange clients.
In a statement on Tuesday confirming the summons, SARS said it conducted a thorough investigation into various taxpayers who had not made true and accurate tax disclosures.
“The investigation revealed that the taxpayers had colluded to expatriate funds offshore in a manner that obscured tracing the expatriated payments and jeopardises the recovery of tax in South Africa.”
Sasfin said that, after receiving the summons, the bank engaged with the relevant regulators on the matter and obtained a legal opinion from ENSafrica. The opinion was written by Professor Dale Hutchinson, Professor Michael Katz, and Aslam Moosajee and endorsed by Advocate Wim Trengove.
“The legal opinion is unequivocal that the claim falls outside of the recognised parameters of applicable law and has a very remote likelihood of success. On the basis of this strong legal opinion, Sasfin Holdings concluded that the claim will not result in the recognition of any liability,” the SENS announcement said.
It said the directors of Sasfin Holdings remain of the view that SARS’s claim has no merit and little chance of success.
If Sasfin’s reliance on the legal opinion turns out to be misplaced, a liability of almost R4.9bn could put a severe dent in the bank’s balance sheet. The group’s financial statements for the year to June 2023 showed the bank held total assets of R12.4bn. Its single largest asset was loans and advances of R9bn.
Sasfin Bank has admitted that former foreign exchange clients operated a syndicate that ran an unlawful scheme to facilitate the expatriation of money out of South Africa and colluded with former bank employees, who operated outside the scope of their employment.
In its annual results to the end of June, Sasfin said it fired all the employees in its foreign exchange business unit who colluded with clients to circumvent South Africa’s exchange control and anti-money laundering regulations. In addition, it had terminated its relationship with the clients implicated in the allegations of financial conduct, which go back to 2014.
Read: Sasfin fires employees implicated in money-laundering investigation
Nature of the claims
The SARS summons consists of two claims.
In the first claim, SARS provides a list of 18 companies that deposited a combined R5.33bn into their Sasfin accounts but failed to declare income tax and VAT payments totalling R1.96bn.
According to the summons, “as and when the deposits were made, Sasfin directly or indirectly assisted the taxpayers to export undeclared funds unlawfully out of South Africa”.
SARS argues that Sasfin’s negligence caused the economic loss.
All but four of the companies cited are either in the process of being deregistered with the Companies and Intellectual Property Commission or have already closed.
Some of the listed companies were mentioned in SARS’s 2022 successful ex parte case in which the revenue service won a preservation order against the local assets held by Zimbabwean billionaire and cigarette magnate Simon Rudland and business partner Ebrahim Adamjee.
The second claim against Sasfin relates to Gold Leaf Tobacco Corporation (GLTC), which is run by Rudland.
The SARS summons says GLTC deposited R2.9bn into its local Sasfin account but did not declare this as taxable income for the 2017 and 2018 tax years.
SARS submits that GLTC owed R4.46bn in income tax and VAT by May 2023.
To transfer the funds abroad, it says the clients cited in the summons had to provide Sasfin with incomplete documentary evidence or fraudulent supporting documents.
SARS claims Sasfin directly or indirectly assisted the named clients in transferring funds abroad in one of several ways:
- By processing foreign payment transactions without any or with incomplete supporting documentation.
- By concealing transactions from SARS and the South African Reserve Bank (SARB) by deleting the transactions in question “not only from the taxpayers’ and GLTC’s bank statements, but also from Sasfin’s Balance of Payment Customer (Bopcus) report”, which banks are required to file daily with the SARB.
- By failing to report the foreign payment transactions in its Bopcus reports or other mandatory reports.
“Sasfin was at all relevant stages aware, alternatively ought to have been aware, of the taxpayers’ and GLTC’s conduct and that the export of the funds abroad was wrongful and unlawful,” says the summons.
SARS says it is owed R4.8bn in damages for the taxes it now cannot raise because the cited companies either closed or do not hold sufficient local assets to pay the damages claim.
Sasfin flagged GLTC as a potential risk in September 2016 and conducted an internal investigation a year later, zeroing in on 10 suspicious transactions after GLTC had requested a credit line. The investigation confirmed that at least one and possibly all the 10 suspicious transactions were fictitious, fraudulent, or based on incorrect documentation.
Uphill battle
For SARS’s damages claim to stick, it will have to prove that Sasfin’s actions were wrongful, intentional, or negligent, and there was a causal connection between it and the harm suffered.
Business Day quoted Moosajee, who co-authored the legal opinion obtained by Sasfin, as saying South Africa’s courts are generally reluctant to impose liability for pure economic loss claims, unless there is a recognised category that the court have already established. SARS’s claim did not fall under any recognised category of liability.
“Our courts are generally loath to extend those categories of liability, particularly if there is a danger of indeterminate liability,” he said, referring to a legal term that could make Sasfin liable for an unknown amount of money, for an unknown period, to an unknown class of people.
“We think there is a danger in indeterminate liability if SARS succeeds with this claim,” Moosajee was quoted as saying.
Where are the arrests?
Tax Justice SA, a lobby group against tax evasion and illicit trade, praised SARS for issuing the summons and for its recent announcement that it has made tax assessments of more than R10bn against key players in the tobacco and gold industries.
But Yusuf Abramjee, the group’s founder, said these actions raise the question why “the kingpins” have not been arrested.
“It’s almost a year since Al Jazeera lifted the lid on how Gold Leaf’s operatives allegedly corrupted bank officials to set up a massive transnational laundry to wash the billions it makes from illicit cigarette sales,” he said.
“Yet despite SARS issuing a civil claim linked to their operations, the company is still conducting a business like normal in our country and no criminal action has been taken against those allegedly involved in the mass-scale looting.
“Why have we not seen arrests of the Sasfin officials who were allegedly involved?”
An Al Jazeera documentary flighted last year alleged that Sasfin staff, as well as those employed by two other banks, were involved in laundering money in exchange for bribes from an international gold-smuggling syndicate with ties to Zimbabwe.
Al Jazeera accused Rudland of being the ring-leader of the operation. Rudland has denied the allegations, saying they are false and baseless.
